His finest hour1

It seems that the days of Mr Loskutov, the director of KNAB, Latvia's nascent anti-corruption bureau, are numbered. Coalition of the crooked seems set to unseat him using an overblown charge. Yet no one with a bit of brains should be fooled by the masquerade that surrounds the hunt for Mr Loskutov. His main 'fault' really was that, under his leadership, and contrary to expectations of many (myself included), KNAB turned into Latvia's most (and perhaps only) effective law enforcement agency. And this is going to cost Mr Loskutov his job.

Why our rulers are so anxious to behead KNAB? Here is how things work in this country. There are politicians who use their office to provide favors to certain business interests. These favors can take the form of public procurement, favorable regulation, or simply help rid of the competitors. Naturally, favors are highly profitable. When election time comes, these businesses use these profits to re-elect their political cronies by financing expensive election campaign designed to brainwash an army of passive, easily swayable voters. Under the leadership of Mr Loskutov, KNAB threatened the very foundations of this system. First, It made it more risky for public officials to engage in corruption, thereby reducing their value to businesses seeking political favors. Second, KNAB has relentlessly enforced campaign finance law, making it harder for politicians to finance huge election campaigns. Moreover, KNAB went further by proposing reform of campaign financing that would drastically reduce the role of money in election campaigns. These are the real reasons for the hunt on Mr Loskutov. Nothing personal, just (very profitable) business.

This particular battle seems to be lost. The powers that be will most replace Mr Loskutov by a more agreeable person and KNAB will become indistinguishable from the rest of Latvia’s numerous special services and law enforcement agencies. Yet this somehow reminds of an old anecdote when a wise man is asked about the consequences of the French revolution. "Too early to say", is the man's reply. In the long run, there are a number of positive things about this whole KNAB affair. First, in the few years that KNAB has been in operation we have had a good look at how rampant corruption is in the public sector. Second, many politicians have shown glimpses of their true faces during the hunt for Mr Loskutov, and voters should not forget this next time they go to the polls. Third, KNAB has shown us how "the rule of law" can also be applied to the politically powerful and connected. And this is something that will inspire younger generations, which will eventually bring its resurrection.

Finally, it may not seem like it at the moment, but there couldn't be a better way for KNAB to end. There is that old saying that a man is judged by his enemies. An incredible amount of effort that has been exerted by our rulers to behead KNAB is the best compliment there could be to the bureau and its director. A job well done, indeed!

Art 25.06.2008 12:16
I have to agree, this is the best possible way for KNAB to end...

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Offtopic: Fine article about reforms and Political Economy has recently been produced (http://economistsview.typepad.com/economistsview/2008/06/a-p...
Authors argue that "the relationship between effectiveness of policy reform and political institutions is nonmonotonic". They expect "policy reform to be most effective when political institutions are sufficiently weak that major distortions are present, but not so weak that any attempt at reform can be undermined".

What is author's opinion on the magnitude of distortions and weakness of political institutions in Latvia - too weak / too strong for reforms to be most effective, or at the optimal level for reforms to take place?

Morover, authors argue, that "seesaw effects" are posiible - "reform in one dimension of policy against the background of powerful and largely unchanged political demands can lead to more intensive use of other distortionary instruments to satisfy the same politically powerful constituencies. For example, when politicians are unable to use monetary policy or cheap loans from the central bank to favoured business and regional interests, they may use more fiscal transfers to satisfy politically powerful constituencies."

Can we consider that the reforms caused by EU accession have created such "seesaw effect" in Latvia - use of other distortionary instruments (Gaismas pils, Dienvidu tilts, etc.) is intensified to satisfy the same politically powerful constituencies, as political demands seem to be largely unchanged here...?